Despite geopolitical risks, oil market fundamentals remain bearish, UBS analysts said in Monday's report.
Although the ongoing conflict in the Middle East initially raised concerns about possible disruptions in oil supplies, this immediate risk has since been reduced. The easing of geopolitical tension, combined with weak global demand, has kept the overall outlook for oil prices declining.
“We continue to expect the oil market to be almost balanced in 2025, but only if OPEC+ production cuts don't end,” UBS analysts said.
One of the main factors leading to the bearish outlook for oil prices is that demand from the world's largest oil consumers will fall short of expectations. UBS has lowered its 2024 global oil demand growth forecast by 100,000 b/d to 900,000 b/d.
The Chinese government has introduced a stimulus plan aimed at boosting economic growth, but structural shifts in fuel consumption, including increased adoption of electric vehicles, are expected to limit the plan's impact on oil demand.
For 2025, UBS expects a slight improvement in oil demand, which is expected to grow by 1.1 million b/d. On the supply side, the outlook remains mixed. The bank expects non-OPEC+ countries to maintain strong production levels, particularly the US.
However, due to stagnant drilling activity, US oil production is facing resistance, and there has been no meaningful increase in recent months.
UBS lowered its US crude oil production forecast, citing a reduction in the number of rigs and a reduction in drilling activity, and expects the growth of US crude oil production to slow further in 2025, increasing only 400,000 b/d, lower than previously forecast. This marks a continuation of the bearish trend seen over the past few months.
The forecast for OPEC+ crude oil production has also been lowered. UBS also pointed out that compliance with production targets by the organization's major member states remains uneven. For example, although Iraq implemented production cuts in September, its production was still above the agreed target level.
UBS anticipates that idle OPEC+ supply will not return to the market until at least 2027, as weak demand and non-OPEC+ supply growth will continue to offset any potential increase in its supply.
Oil prices rebounded on Monday, falling more than 7% the week before. China cut the benchmark loan interest rate as scheduled on Monday as part of broader stimulus measures aimed at reviving the economy. Saudi Aramco's CEO said at an energy conference in Singapore on Monday that he is still “quite optimistic” about China's oil demand, given increased policy support aimed at boosting growth and growing demand for jet fuels and liquefied fuels.
UBS analyst Giovanni Staunovo (Giovanni Staunovo) said, “The geopolitical tension in the Middle East and the Saudi Aramco CEO's positive comments on oil demand may support oil prices.”
Meanwhile, two sources told Reuters that US President Joe Biden's special envoy Amos Hochstein (Amos Hochstein) will hold talks with Lebanese officials in Beirut on Monday about the terms of a cease-fire between Israel and Hezbollah.